ROI Calculator

What this tool is used for

• Expressing a gain as a percentage of what was invested.
• Comparing two investments of different sizes on one measure.
• Working out the net gain once acquisition and exit costs are subtracted.
• Producing a return figure a business case has to defend to a finance team.
• Checking a stated return against the underlying numbers.

Frequently Asked Questions

What is the formula?

ROI = (gain − cost) ÷ cost, expressed as a percentage. The denominator is the COST, not the final value — dividing by the final value instead gives the profit margin, which is a different and always smaller number.

Why is plain ROI misleading?

Because it ignores TIME. A 50% return over ten years and a 50% return over one year have identical ROI and wildly different quality. Annualised return, not ROI, is what makes two investments comparable.

How do I annualise a return?

Use CAGR: (ending ÷ beginning)^(1/years) − 1. A 50% total return over 5 years is only 8.4% a year — dividing 50 by 5 to get 10% overstates it, because it ignores compounding.

What costs should be included?

All of them, or the figure flatters. Transaction fees, ongoing management costs, taxes, and the opportunity cost of the capital. Marketing ROI in particular is routinely quoted on ad spend alone, excluding staff time.

What is the difference between ROI and ROAS?

ROAS is revenue divided by ad spend and ignores the cost of goods; ROI is profit divided by total cost. A 4:1 ROAS can still be a loss if margins are thin, which is why the two are not interchangeable.

Why does ROI ignore the time value of money?

Because it is a simple ratio with no time term — 50% over one year and over ten look identical. NPV and IRR exist precisely to discount future cash flows, which is why they are used for anything with a long horizon.

What is a hurdle rate?

The minimum return an investment must beat to be worth doing, usually the cost of capital plus a risk margin. Without one, a positive ROI looks like success even when the money would have done better sitting where it was.

Common errors and gotchas

• Omitting the holding period, which makes a 20% return over one year look the same as over ten.
• Excluding costs, which is the difference between a headline and a real return.
• Comparing ROI across investments with very different risk.
• Using the current value rather than the realised one, which is unrealised until sold.
• Double-counting a reinvested return as both a gain and an additional investment.